Oil remains near 5-week high on expectation output freeze

Oil prices remained near five-week highs on Tuesday, fuelled by talk of producers taking action to prop up the market, although some investors cashed in during Asian hours on the 16 percent rally since early August.

A worker walks past a drilling rig at a well pad of the Rosneft-owned Prirazlomnoye oil field outside the West Siberian city of Nefteyugansk, Russia.(REUTERS)

Oil prices remained near five-week highs on Tuesday, fuelled by talk of producers taking action to prop up the market, although some investors cashed in during Asian hours on the 16 percent rally since early August.

Brent crude futures were trading at $48.35 per barrel at 0737 GMT, flat from their last close, but over 15 percent higher than the $41.51 low for the month on Aug. 2.

U.S. West Texas Intermediate crude was trading at $45.76 a barrel, up 2 cents from its previous close, and still over 16 percent above its $39.19 monthly low from Aug. 3.

Traders said earlier price declines were the result of cashing in following the two-week long rally.

The gains were driven by expectations from investors that oil producers may take action, possibly freezing output, to rein in ballooning oversupply.

“Crude oil rose to a four-week high as speculation continued to mount that OPEC would discuss a potential cap on production at an upcoming meeting between the members of the group. Russia joined in, saying it was open to such talks as well,” ANZ bank said.

Led by top exporter Saudi Arabia, the Organization of the Petroleum Exporting Countries (OPEC), has re-launched a debate about oil producers potentially capping soaring output in an effort to reduce a global overhang in production and inventories of crude oil and refined fuel products.

Many traders, however, voiced their doubts over OPEC’s ability to agree amongst its divided members, and expect talks will fail just as they did in April.

Analysts also said that concerns over oil production in Venezuela were backing higher markets.

“News of an imminent collapse in oil output from Venezuela also supported prices,” ANZ said.

Venezuela, which holds the world’s largest crude oil reserves, is on track to suffer its steepest annual oil output drop in 14 years as it struggles with an economic and political crisis and years of underinvestment and mismanagement.

In the 12 months to June, Venezuela’s crude output fell 9 percent to 2.36 million barrels per day (bpd), and trade data seen by Reuters show that state-controlled oil firm PDVSA’s crude exports, which account for 94 percent of the country’s hard currency income, fell to 1.19 million bpd in July, excluding independent sales made by its joint ventures.